- International Monetary Fund
- Published Date:
- December 1994
DEBT STOCKS, DEBT FLOWS AND THE BALANCE OF PAYMENTS
THE BANK FOR INTERNATIONAL SETTLEMENTS
INTERNATIONAL MONETARY FUND
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
THE WORLD BANK
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed:
— to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy;
— to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and
— to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations.
The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973) and Mexico (18th May 1994). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).
Publié en français sous le titre :
ENCOURS DE LA DETTE,
FLUX ET BALANCE DES PAIEMENTS
© Copyright, 1994, the Bank for International Settlements, Basle;
the International Monetary Fund, Washington;
the Organisation for Economic Co-operation and Development, Paris;
the World Bank, Washington.
Applications for permission to reproduce or translate all or part of this publication should be made to:
Head of Publications Service, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
TABLE OF CONTENTS
Bank for International Settlements
Balance of Payments Statistics Yearbook, published by the International Monetary Fund
Balance of Payments Manual, published by the International Monetary Fund
Central and Eastern European Countries
Centre for Co-operation with Economies in Transition
Creditor Reporting System maintained by the OECD
Development Assistance Committee of the OECD
Development Co-operation Directorate of the OECD
Debtor Reporting System maintained by the World Bank
Foreign Direct Investment
International Monetary Fund
International Financial Statistics, published by the International Monetary Fund
International Investment Position - statement of end-of-period stocks of external assets and liabilities including reconciliation factors
International Working Group on External Debt Statistics
Newly Independent States of the Former Soviet Union
Official Development Assistance
Organisation for Economic Co-operation and Development
Other Official Flows
System of National Accounts
World Debt Tables, published by the World Bank
World Economic Outlook, published by the International Monetary Fund
Developed countries have been providing financial assistance to countries in earlier stages of development for nearly half a century. The measurement of the flow of external resources is essential for the formulation of development strategies and the evaluation of assistance programmes. Up-to-date, accurate data on debt and financial flows in turn facilitate the measurement of resource flows. The debt component of resource flows is the focus of this report.
The report extends the discussion of stocks of external debt contained in an earlier report.1/ by focusing on the ways in which stock data enter into the analysis of the flow of external resources between creditor and debtor countries. The sponsoring institutions, cooperating in the International Working Group on External Debt Statistics (IWGEDS), are the Bank for International Settlements (BIS), the International Monetary Fund (the Fund), the Organisation for Economic Co-operation and Development (OECD), the World Bank and the Berne Union.
During the 1970s many countries began accumulating large amounts of external debt. In the early 1970s, a significant part of external economic assistance took the form of official financing, including official support of export credits. By the late 1970s, the emphasis had shifted towards financing provided by private creditors, notably commercial banks, which began to recycle petrodollars by lending large amounts to developing countries at low nominal interest rates. As a result, developing countries acquired a growing proportion of short-term debt and it became necessary to extend the compilation of debt data beyond the usual long-term financing items. Many of these short-term loans financed uneconomic projects. Others financed balance of payments deficits which countries should have addressed with more prudent economic policies instead of increased borrowing. A dramatic change in the emphasis on debt-financed economic assistance came in 1982, when Mexico announced that it was unable to meet its current debt servicing obligations. This action led to the realisation that the accumulated debts of many developing countries had reached a magnitude that threatened the stability of the international financial system. At that stage, and in the negotiation process that followed, the compilation of accurate data on outstanding debts became critically important.
Four of the multilateral organisations that are members of the IWGEDS.2/ play a significant role in gathering and maintaining information on external debt and resource flows which serves as source data for external debt analysis. These organisations and the broad objectives of their data systems for monitoring external debt are the following:
·Bank for International Settlements (BIS). The BIS aggregates data collected by official monetary institutions on the international assets and liabilities of commercial banks. It evaluates changes in financial positions in order to meet the needs of its member central banks for information relevant to monetary policy, prudential regulation and general economic analysis. The BIS also gathers data on international bonds, Euronote issues and certain derivative instruments. Much of this information is published in the BIS quarterly report International banking and financial market developments.
·International Monetary Fund (the Fund). The emphasis of the Fund is on gathering accurate information on the overall financing of the balance of payments of developing countries. This is part of the Fund’s responsibility for compiling and analysing global balance of payments data. It also compiles debt data in the course of consultations with individual member countries. Furthermore, the Fund combines BIS banking data with data from other sources and publishes international banking statistics.
·Organisation for Economic Co-operation and Development (OECD). The OECD focuses on a comprehensive measurement of official and private resource flows to developing countries, the countries of Central and Eastern Europe (CEECs), and the newly independent states of the former Soviet Union (NISs) in support of its Development Assistance Committee (DAC) and Centre for Co-operation with Economies in Transition (CCET). Towards this objective, the OECD provides “DAC” statistics which include data it receives through the DAC and Creditor Reporting Systems.
·World Bank. The Bank, as a major creditor, maintains a full record of the external debt of its member countries. It also compiles data on the total flow of external capital to developing economies for use in economic analysis.
The above institutions regularly produce a variety of reports on the subject of external debt, as well as more general analyses of international financial developments (see Annex I). Recognising the need for dialogue to reconcile differences in debt compilation systems, the four institutions and the Berne Union formed the IWGEDS in 1984. In 1988, the IWGEDS published a report which discussed the definition of external debt, its statistical coverage and the methodology for its analysis. The present report takes this discussion further and considers the ways in which external debt data enter into analyses of the flow of external resources between creditor and debtor countries.
The structure of the report is as follows:
·the summary reviews the major topics covered, with cross-references to specific chapters;
·Chapter I defines some of the key terms used in debt analysis, describes the various debt classification systems and outlines methodologies for reconciling differences in debt stocks and debt flows;
·Chapter II compares and contrasts the debt and debt-related data systems of the Fund, the OECD and the World Bank;
·Chapter III provides the user with two case studies on data analysis problems and examples of debt restructuring;
·Chapter IV outlines the conclusions of the IWGEDS.
SUMMARY OF FINDINGS
Definitions and classification systems
The report begins by defining some key terms useful for the discussion of the various debt classification systems of the members of the IWGEDS. A glossary of terms is also provided at the end of the report for the reader who may not be familiar with all of the concepts and terms relating to external debt, international economics and finance.
The report then discusses the different debt classification systems. Each of these systems contains information on the geographical distribution of debt flows, but there is considerable variation in the country coverage and in the allocation of the data among the various categories used. The systems of the BIS and the Fund attempt to be comprehensive. The Fund’s published data include all member countries and some other economic units. The BIS collects, in extensive country detail, data covering the external assets and liabilities of commercial banks in virtually all countries where international banking business is significant. The OECD and the World Bank collect similar data but on somewhat different groups of countries. The OECD covers those countries that the DAC defines as developing countries, as well as Eastern Europe and the newly independent states of the former Soviet Union, Andorra and South Africa. The World Bank includes all countries within the low or middle income range according to specified income criteria. Consequently, an aggregation of the data from these two institutions across groups of “developing countries” produces substantially different totals (see Chapter II).
In addition to data on debt per se, the Fund, the OECD and the World Bank collect data on debt service payments, i.e. amortisation of principal and interest payments. Both the OECD and the World Bank compile debt service payments data pari passu with the other debt data, so that, in these systems, there is a continuous record of the interest status for each of the identified debt instruments. The Fund collects data on interest payments and interest accruals as part of the investment income section of the balance of payments accounts, but these data are not usually identified separately from other investment income or related to specific debt instruments.
Relationship between debt flows and stocks
The report considers the relationship between debt stocks and debt flows from two main perspectives. The first is the reconciliation of data on debt stocks with that on debt and resource flows, using OECD data based on creditor sources, including inter alia the BIS statistics on bank claims, and World Bank data based mainly on debtor sources. The second is the relationship between debt flows, debt stock data and the data on capital flows, which the Fund records according to the principles of the balance of payments statistics that it publishes. The reconciliation of flow data with stock data involves a large number of elements which are discussed in detail in Chapter I. Some of these elements, such as reports of cash disbursements and repayments on loans, are part of the data collection systems. Others require calculation or estimation, such as the conversion of currencies into a common numeraire or the elimination of the effects of changes in market values.
Traditionally, the basis of the balance of payments statistical system has been transactions between residents of a country and non-residents, focusing primarily on flows. More recently, however, growing attention has been paid to the scope for establishing statements of international investment positions. The international investment position incorporates reconciliation factors such as valuation or coverage changes that are of significance in reconciling transactions during a period with changes in the end-of-period values of stocks of external assets and liabilities. These international investment positions are more comprehensive than data on debt stocks, since they cover all external financial assets and liabilities, including, for example, equity investment, which is not a debt item.
Chapter II discusses the problems in reconciling debt stock and flow data within the World Bank’s Debtor Reporting System, and between the Debtor Reporting System and the balance of payments system. Complementing this discussion are two case studies on data reconciliation, which are detailed in Chapter III. Data reconciliation within the Debtor Reporting System is relatively clear-cut because most of the necessary ingredients are built into the accounting system. However, comparisons of debt data as they appear in the World Bank’s World Debt Tables, OECD publications and the Fund’s Balance of Payments Statistics Yearbook (BOPSY) are more problematic. This is partly because of differences in timing, classification, etc., but is also due to the lack of coordination between the agencies in the debtor countries that report debt data only to the World Bank and the agencies that report the balance of payments accounts to the Fund.
Coverage of financial debts
Both the OECD’s Creditor Reporting System and the World Bank’s Debtor Reporting System have, over the years, expanded the range of their statistics to cover a wider spectrum of external liabilities (or assets viewed from the creditor side), in order to keep up with new developments in international capital markets. The original concentration on long-term debt between “official” creditors and “public sector” debtors, including officially guaranteed debt, has become less indicative of the flow of financial resources to developing countries as short-term financing by commercial banks has become more important. Borrowing by the private sector, including trade finance, has also grown significantly with the gradual deregulation of capital markets and the relaxing of exchange controls.
This widening of the spectrum of financial assets covered by the Creditor Reporting System and the Debtor Reporting System has been especially important in the measurement of capital flows, or resource flows, between creditor and debtor economies. Indeed, as the coverage of instruments in these systems broadens, it begins to approach the coverage of capital flows, on the liabilities side, registered in the balance of payments accounts of debtor countries. The two systems are increasingly becoming more consistent in their coverage of financial instruments as the objective becomes a more comprehensive coverage of resource flows.
As mentioned earlier, each member of the IWGEDS, drawing on different sources, has developed a set of statistics appropriate for its own purpose. This diversity is to some extent an element of strength since, in practice, no one institution collects all the data required. For a comprehensive compilation of either debt stocks or debt flows, each can rely on one or more of the others for part of the data it records, making the necessary allowances for differences in definitions and conventions. However, overlapping categories require special attention. For example, OECD reporters report officially guaranteed suppliers credits in the Creditor Reporting System. These are credits which are extended to importers abroad. However, some of these are later acquired by banks (for example through the discounting of trade bills). In most countries suppliers’ credits purchased by banks are treated as external claims and included in the figures reported to the BIS. This is a potential source of double-counting when OECD combines its external debt data with BIS bank claims. This example illustrates how the use of multiple sources typically makes adjustments necessary to arrive at consistent comparisons. As will be seen, it is already possible to make many of these adjustments, but others must await further refinement of the statistical systems of the data-gathering institutions, or the sources reporting to them.
The role of the Fund is somewhat different with regard to debt data. Unlike the OECD and the World Bank, the Fund does not compile debt stock statistics for inclusion in its statistical publications. However, the Fund collects debt data in the context of consultations with member countries. It combines these data with the data it obtains through the OECD and the World Bank. These data are useful in country analyses and the Fund compiles and publishes regional debt aggregates and projections in its World Economic Outlook.
The members of the IWGEDS collaborate closely in the preparation of data and of reports on the data and in the analytical aspects of external debt. They confer periodically to compare the information that countries report to them, to coordinate estimating procedures, and to review the interpretation of data and the analytical treatment of particular types of transaction. This collaboration is especially important when dealing with the complex arrangements sometimes involved in debt restructuring. So the systems of these institutions are closely aligned at the level of detailed inputs, although composite debt and debt-related statistics may differ in their publications.
Relationship to balance of payments statistics
The Fund is the international institution with the responsibility for organising the collection and publication of worldwide and national balance of payments statements. In carrying out this role, it has become concerned with the emergence of large discrepancies in summing the worldwide tabulations of current and capital accounts. Each tabulation should net to zero at world level. However, the sum of national current accounts averaged −$76.3 billion (annually) in the 1985-91 period, while the sum of recorded net capital flows averaged +$72.1 billion (annually). The Fund organised two working parties of experts to examine these deficiencies and recommend measures to improve this very important set of statistics. These were the Working Party on the Statistical Discrepancy in World Current Account Balances and the Working Party on the Measurement of International Capital Flows. The report of the Working Party on the Measurement of International Capital Flows.3/ addressed the problems in measuring international capital flows, and, in that connection, compared the data on debt flows produced by the World Bank with data covering approximately the same category in the national balance of payments statistics. It was hoped the detailed database on external debt would help explain and reduce the discrepancies observed in balance of payments reporting. Although the initial results were not encouraging, a number of initiatives are underway to increase coordination among the data systems of the IWGEDS so as to improve the consistency of the data on capital flows. The Working Party noted the need for greater coordination between national balance of payments compilers and the offices responsible for the preparation of debt data for submission to the World Bank. Specifically it recommended that:
“National balance of payments compilers in developing countries clearly should be more intimate with the details of debt statistics compiled for their individual countries, because the debt databases are broad, detailed, and perhaps informative.”
“The OECD and World Bank should cooperate in making every effort to ensure that the debt statistics they compile can be reconciled with balance of payments data.”
The IWGEDS has developed a work programme in pursuit of the above objective. The present report and the earlier report on external debt stocks are two important building blocks towards a better understanding of the relationships among these data sets.
A principal theme throughout this report is that the various data systems of the IWGEDS are closely interrelated and, with few exceptions, have a common structure of data inputs. There are, however, many features of the systems that can lead to discrepancies, particularly when the data relate to flows during a specific period of time. A comparison of the data in both the Creditor Reporting System and the Debtor Reporting System with balance of payments data raises a different set of difficulties. The balance of payments data use a variety of source materials and present data in different categories. Moreover, the basis of the balance of payments is the accruals method, as distinct from the cash transactions measured by both the Creditor Reporting System and the Debtor Reporting System. As for the banking data collected by the BIS, there is some overlap with the data compiled by the other agencies, but taken as a unit, the BIS data fill a gap in information which the Creditor Reporting System and the Debtor Reporting System do not cover.
It is possible to reconcile the data on debt stocks and debt flows in the Debtor Reporting System, because the data in the system are available on a loan-by-loan basis. Similarly, the Creditor Reporting System, in principle, is internally consistent, but the loan-by-loan component is smaller and the database is less readily amenable to reconciliation. The balance of payments system is not based on such detailed inputs. Moreover, few countries construct a reconciliation of their capital flow data in the balance of payments with the estimates they may compile for their international investment position. The BIS does not collect debt flow data as such, but prepares, as a proxy for flow data, estimates of changes in the external position of reporting countries’ banks with adjustment for exchange rate fluctuations.
Comparisons of data on aggregate annual resource flows, reported by the Fund, the OECD and the World Bank show substantial differences. These result, in large part, from differences in the countries that these organisations identify as “developing”, but also, to a lesser extent, from the diverse types of flow included. For example, the OECD, unlike the World Bank, includes technical cooperation grants as a flow. Given sufficient information about these differences, it is possible to reconcile the results for any individual country reasonably well.
Many adjustments are required to reconcile debt stocks and flows within the individual systems. The most important is the adjustment for the effect of shifts in exchange rates on the valuation of debt, especially in periods when exchange rates tend to fluctuate widely. The change in the value of a country’s outstanding debt, when expressed in a common numeraire (usually the US dollar), may often reflect changes in the US dollar value of the debt in the absence of any specific financial transactions. Other major adjustments are those that may be necessary to reflect changes in market value where a country’s debt is traded or changes in outstanding debt resulting from a debt restructuring, which may shift the debt between the official and private sector without affecting the total. Considering the magnitude of some adjustments, one objective of this report is to draw the attention of users of the data to the need for caution in making inferences about flows or transactions from reported changes in outstanding debt stocks.
A particularly complex aspect of reconciling debt stocks, or deriving debt flows from debt stock data, is the effect on the reported data of debt restructuring. Chapter III elaborates on these effects, but the main consideration to be borne in mind is that the reported flows may be the result either of a cash transaction, such as an actual loan disbursement or repayment, or of other kinds of transaction, such as debt restructuring, which represents an agreement between the parties concerned that may change the amount or character of the debt.
The principal definitions and concepts used by the various systems in compiling external debt stocks and flows are consistent with the conceptual framework of the 1993 System of National Accounts.4/ However, these standards are now under review and there may be some changes that will affect the compilation of debt statistics. In the case of the balance of payments, the present report uses the existing methodology which appears in the fourth edition of the Fund’s Balance of Payments Manual. A fifth edition was published in September 1993 and, where necessary, the report makes reference to that edition. But for some time to come, the reported and published balance of payments statistics will conform to the fourth edition of the Balance of Payments Manual.
Since the organisations responsible for the various data systems have different objectives, their presentations of debt data, especially within the broader context of resource flows, may differ in content and in coverage. Each user of the data must decide which form is most appropriate to a particular analysis. While the diversity of presentations may require reconciliation work, it also provides the analyst with a broader menu of analytical options.
Since the IWGEDS was set-up in 1984, its members have made considerable progress in improving the accuracy and coverage of their information on debt stocks and flows, and they will continue to refine and enlarge their respective databases. In addition, they will encourage the statistical and administrative offices of individual countries to improve their data compilation systems and to provide ready access to the information which compilers of debt and balance of payments statistics need.